It is time for change outdated tax system

Calls for overhauling the unreasonable taxation system, particularly income tax, are growing louder. Many argue that tax reforms are needed due to the system's failure to keep up with economic development and changes in income and asset prices. This year, a record-breaking 1,422 proposals for tax reform have been filed, indicating widespread dissatisfaction with the outdated system that has persisted for over a decade.

One example is the individual consumption tax, which imposes a 5 percent tax on vehicle purchases. Introduced in 1977 as a special consumption tax to curb the indiscriminate purchase of luxury items such as jewelry and high-quality fur, it made sense when only 1 percent of Koreans owned a vehicle. Today, almost half the population owns a car, making it a daily necessity rather than a luxury. Despite this shift, the individual consumption tax on vehicles has been in place for 47 years, contributing significantly to tax revenue. This is particularly unreasonable compared to TVs, refrigerators, and air conditioners, which are no longer subject to individual consumption tax.

The wage and salary income tax, which is deducted from workers' monthly wages, is also under fire. While tax brackets have become increasingly fragmented and complicated, the upper cap for the wage and income tax, which is subject to a 24 percent rate, has been set at 88 million won since 2010. This static cap has led to a "silent increase in taxation" on middle-income families because the tax burden rises with inflation even if substantive income remains unchanged or decreases.

Similarly, the standards for financial income tax, applied when financial income like interest or dividends exceeds 20 million won per year, have been unchanged for 11 years. With rising savings and stock investments, more people are now subject to this tax. Additionally, the special tax for rural development, initially introduced as a temporary measure to enhance Korea's agriculture and fishery sectors following the Uruguay Round agreement, has persisted for 30 years.

An outdated tax law that fails to adapt to changing times not only fuels public dissatisfaction but also leads to various adverse effects. The government's frequent measures to reduce the individual consumption tax, purportedly for the public's benefit, have led to cycles of deferred vehicle purchases when tax rates are high. Additionally, the aggregate tax on dividend income, part of the financial income tax, results in stock market undervaluation. It is unfair for people to pay excessive taxes or taxes beyond their means. No wonder the International Institute for Management Development (IMD) downgraded South Korea's tax policy ranking by eight places in this year's National Competitiveness Assessment. It is time for a fundamental overhaul of our outdated tax system.